Higher Yields Can Mean Lower Returns

Chart of the Week for March 29-April 4, 2002

Two difficult years for stocks prompted some investors to increase their bond exposure. Positive bond market returns and relative safety probably made the decision even easier. However, while bonds are generally safer than stocks, they are not without risk, nor are bond fund returns guaranteed. The chart above shows how bond yields have risen over the first quarter, meaning prices have fallen. This lowers bond fund returns and may be the beginning of a trend if economic improvement continues. Investors expecting only safe, steady returns from their bond funds could be in for an unwelcome surprise if yields continue upward.

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